This is a combination of trust-based and outcome-based funding. We have a great advantage because we are also place-based. I see few national funders (but there are some), that are allowed by their Boards and leaders to find the “sweet-spot” on the outcomes-based to trust-based funding continuum. But like GOS, they are both means. I’d suggest they are strategic means rather than tactical, but they are still means.

The sweet-spot for each End and related circumstances, will be different. But rather than arguing all-GOS or no-GOS, we should be figuring out how to find the sweet-spot a higher percentage of times.

That said, are we sure that funder-imposed overhead restrictions per sae are the problem?

I can think of plenty of for-profit industries that operate just fine on a cost-plus or open book basis, where the amount of overhead permitted is negotiated with the customer. A lot of home-builders work this way, for example.

Maybe the question is: Why don’t funders build in ENOUGH of an overhead allocation? (Or, conversely, why can’t nonprofits learn to operate healthily at the overhead rates their funders want?)

Suspect answers:

* Multiple reporting relationships, each with different definitions of overhead, and each with different timing, render the accounting systems unable to describe what the true cost structure looks like…. thus….

* Nonprofits don’t know what their unit costs are and are all too happy to say yes to grants that only MIGHT be below-cost

* Organizations fail to say “no” to unhealthy grants (they need to make payroll and don’t have capital on-hand that lets them turn down “bad” business)

* Organizations lack the culture or governance they need to say “no” to unhealthy grants (short-term alleviation of beneficiaries pain outweighs long-term benefit to beneficiary of having a healthy nonprofit provider)

* Certain funders (like the government) are so big that they have “too much” negotiating power.

* Precisely because there are other funders to backfill, big funders are able to get away with squeezing PAST the point of death. (Walmart squeezes its vendors within an inch of death as well. But its vendors are for-profit, so they don’t have the subsidizers that would allow Walmart to get away with squeezing BEYOND the point of death)

* Funder unwillingness to accept “price per unit of execution” as their frame of reference (many nonprofit programs cannot be “unitized”, though) (many can, on the other hand — We buy tutoring for our own kids on a price-per-session basis. Why not do the same when we buy tutoring for someone else’s kid?)

There are many more!

To me, the answer lies in creating a class of equity-like stakeholders that provide both the “no” capital and the equity-ethic that makes it possible for organizations to say “no” when they need to, and… to use the focus and excellence that gives them to gain the negotiating power they need.

Perhaps in the case of a large foundation such as Mr. Brest’s, many of hte organizations supported are of a large size themselves and have 10 or more yearly grants of a meaningful size that all have 5-10% set for overhead. In these organizations cases, their overhead is covered.

I think that Paul S. has hit the nail on the head in regards to how best monitor GOS grants. Monitor the organization against their goals (performance management). An organization sets a strategic path, tactics, goals and objectives (or so we hope) and then executes against those plans. The first best way to evaluate a potential grantee is against its own plans.